RAM Ratings revises outlook on YTLPI’s AA1 ratings to positive on strong performance turnaround

RAM Ratings, February 13, 2025

RAM Ratings has revised the outlook on the long-term AA1 issue ratings of YTL Power International Berhad’s (YTLPI or the Group) debt/sukuk programmes to positive from stable. Concurrently, we have affirmed the Group’s short-term P1 issue rating.

The outlook revision reflects the steady improvement to YTLPI’s credit standing due to a stronger operating performance, leading to increased leverage headroom. These improvements were primarily driven by the stellar performance of its Singapore power generation business in the last two years on the back of a healthier operating landscape. The Group’s operating profit before depreciation, interest and tax climbed threefold in the past five years, rising 35% to hit a new high of RM6.33 bil in FY June 2024, while core pre-tax profit, which excludes any one-off exceptional gains and/or losses, was about 45% higher.

As an investment holding company, YTLPI relies on the returns of investee companies – either through operating cashflows, dividends or capital appreciation from divestments – to support its ongoing operations and debt obligations. Its operating cashflow to net debt coverage – a measure of company-level debt coverage level – was an impressive 9 times in fiscal year 2024 (end-June) and is expected to be commensurate with an AAA rating in the coming years, with a projected net cash position. Company-level dividend income is forecasted at strong levels of RM0.9 bil-RM2.2 bil per annum from fiscal year 2025 to fiscal year 2029. 

The Group’s sturdy track record in long-term, regulated concession businesses (infrastructure and utilities as core assets), superior liquidity position and strong financial flexibility complement its favourable business profile, providing it with robust financial buffers and leverage headroom. As at end-June 2024, YTLPI had RM9 bil of unencumbered cash reserves while its net realisable asset value (valued net of liabilities), which is reflective of the equity value of its assets, is estimated at around RM53 bil. Its significant asset holdings can be used to reduce company-level debts, if necessary.

RAM will reassess the rating for possible upgrade if the Group can demonstrate longer-term traction in sustaining its current performance improvements and earnings trajectory, whilst navigating the ongoing regulatory uncertainties and risks from expansion into new businesses. Regulatory changes and industry challenges have weighed on the earnings of some business segments including YTLPI’s UK-based water and sewerage operations under Wessex Water Services Ltd (Wessex). Uncertainties remain over Wessex’s performance under the next regulatory period, which is set to commence in April 2025, particularly as the regulator’s final decision on Wessex’s tariffs and allowed return are lower than Wessex’s proposals. Meanwhile, following the resolution of past challenges that affected Singapore’s power sector and the profitability of players, the operating landscape is seen to be healthy over the next few years owing to healthy demand and coordinated plant-ups under the Singapore regulator.

YTLPI’s expansion into digital businesses and renewable energy, including the solar-powered data centre and digital bank segments, is aimed at alleviating asset and earnings concentration risks over the long term. Looking ahead, diversification into these new businesses entails execution risks, which are nonetheless balanced by YTLPI’s proven investment capabilities and track record.